26 August 2015
Reserve Bank consults on outsourcing
The Reserve Bank has today released a consultation paper with proposals for an updated outsourcing policy for banks.
The current outsourcing requirements date back to 2006 and apply to all locally incorporated banks whose New Zealand
liabilities exceed $10 billion. The current policy is mainly focused on underpinning the provision of liquidity to the
financial system in the event of stress or failure of a bank or of a service provider to a bank.
While these objectives are still valid, it is good practice to review policies from time to time, in particular as the
regulatory landscape has changed over the last nine years. For example, the pre-positioning of the Reserve Bank’s Open
Bank Resolution (OBR) policy may have implications for the shape of the outsourcing policy. The proposed outsourcing
policy also aims to enhance banks’ ability to provide basic banking services after a separation from a parent or post
the failure of a service provider.
Also, an internal stock-take of the outsourcing policy has revealed a need for enhanced clarity around the requirements
of the policy and greater consistency in its application across the banking sector.
To achieve these objectives, the Reserve Bank makes a number of proposals to update the policy. The main proposals
(subject to the outcome of consultation) are:
· an explicit requirement for a separation plan for subsidiaries of foreign-owned banking groups;
· a list of functions that are not relevant for the outsourcing policy
· a list of functions that cannot be outsourced;
· a clearer process for obtaining non-objection from the Reserve Bank for outsourcing proposals;
· a compendium of outsourced functions; and
· a possible alignment of the threshold used for deciding to which banks the outsourcing policy should apply with the
threshold used for OBR.
The Reserve Bank appreciates that outsourcing can produce efficiency benefits for banks and that it allows banks to
access state-of-the-art technology and practices that are not necessarily available internally or within New Zealand.
The proposed new policy does not prevent banks from realising those benefits. The policy also does not prohibit the use
of outsourcing arrangements.
The consultation will run for 10 weeks and closes on 4 November 2015. During this time the Reserve Bank plans to engage
with the banking industry.
ends